Spurious Inflation

Spurious Inflation

Recently for the past one year there has been a lot of debate about Inflation hitting the economy hard. While it’s been heartening to note that the country’s GDP is growing at 9-10%, inflation is slowly inching towards 6-7%. So effectively it’s not a good symptom of growth. Even naïve economists will accept that a 2-3% difference in GDP and Inflation is not healthy signs. We can to some extent comment that the economy is effectively growing only at 2-3% !!!

To dig a little further I want to get down at basics. Basics meaning essential common man’s understanding of Economic growth. I was born in 1983 and since 2000(When i was 17 and in my first year of engg.) I am aware of what is the economic scene in India.I want to breakdown upon what was the cost of essential commodities in 2000 and what is the cost today….

Food

1)Since 2000 a litre of aavin milk in Chennai, has not gone up by even a single rupee. It remains static at 13 rupees. A period of time when inflation has been around 4-5% on an average Year on Year(YOY). Even private milk is sold at the same price. Means, they are definitely not incurring losses.

2) The cost of a kilo of ponni rice (one of the finest quality of rice) in 2000 was around 15 rupees. The same is now available for 18-20 rupees.

3) The cost of wheat today is 18 rupees per Kg, again a marginal increase over 6 years.

4) Sugar is now costing 22-23 rupees against 15-16 rupees in 2000. Also most of dhall varieties haven’t had substantial price rise.

5) Even today a kilo of tomato is around 10 rupees, a kilo of lady’s finger is 10-15 rupees, a kilo of onion is around 15 rupees. A week’s vegetable cost for a family of four wouldn’t cross 50 rupees(1$) for sure.!!!

Caution: I am talking about a period of 6 years where the economy has had inflation of 4-5 % YOY and hence let the reader not assume I am presenting a biased opinion in the above statements. I am just comparing the prices relative to the inflation and time.

To Sum Up: Almost all the above mentioned food items, are not cost controlled by the government. And neither has there been a scarcity for procuring them by and large over the years.

Clothing

1) Clothing is one sector which has burgeoned both in terms of choice and availability. Cotton is still cheap and plenty in availability with few takers. Polyester rules and today in Chennai you can buy a Men’s formal wear from 500 to 50000 or even more. We are not bothered about 50000. Still at 500-600 you get decent clothes that will satisfy the middle class.

Shelter

1) This is my focus area!. In year 2000 you could get a rented house in suburb for 1000 rupees a month. In the city it was around 2000-2500. Reminder: I am writing everything with a middle class family outlook. Today in 2007 the same house in suburb will cost you 3000 and in city will cost you 10000. A classic 300% increase in suburb and 1000% increase for city. And should I talk about real Estate?? All my readers know the worsening trend. A nice opportunity for me to write a separate article about this.

I will stop here. Till now I wanted to really understand if the inflation has hit the economy hard. For me inflation w.r.t economy hits only the middle class and hence iam writing only about them. The rich class always lived rich. Why bother about them?

I will continue in my next article but I will end the article with few things that have inflated in price enormously over these 6 years. This will perhaps give a cue to what I am driving to when I say “Spurious Inflation”.

What has increased substantially in cost

Cinema tickets in multiplexes, Petrol/Gas, Real Estate, Restaurants, Automobiles, Gold, Swanky Gadgets, to name a few.

Hope my mood is caught :). But I want each of my reader to accept or criticize my views. I will publish my closing blog for this, next week.

Till then Happy Reading. !!!